Assertive Moves By Major Players Weekly Update – November 24, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Markets rallied for the fifth week in a row on global and domestic good news, sending the Dow and S&P 500 to new record highs. For the week, the S&P 500 gained 1.15%, the Dow grew 0.99%, and the Nasdaq added 0.52%.1

Investors cheered on Friday when China’s central bank made its first interest rate cut in more than two years, stepping up its efforts to spur growth in the world’s second-largest economy. Slowing factory growth and a stalled housing market – both major factors in China’s historical growth – may have been behind the bank’s surprise move.2

The European Central Bank also jumped on the stimulus bandwagon and began purchasing asset-backed securities in an effort to encourage banks to lend money and boost Eurozone economic growth. While this measure is similar to the bond-buying programs implemented by the Federal Reserve (and pioneered by the Bank of Japan), it falls short of quantitative easing, which would require the ECB to take on the risk of buying the sovereign debt of its member countries. The news caused the euro to tumble; policymakers probably hope further weakness in the euro will lead to export and manufacturing growth.3

Why is all this good news for investors? These assertive moves by major players in the global financial scene are a hopeful sign that they are prepared to do what it takes to put the global economy back on track. While the U.S. is making big strides toward a healthy economy, Europe and China are lagging behind and their central banks may need to make further moves to boost growth.

On our side of the pond, last week’s unexpectedly low new unemployment claims report showed that the labor market continues to make gains. At this point, weekly claims for new unemployment benefits have been below 300,000 for ten straight weeks, which is a fantastic sign for the job market.4 Continuing claims also fell to the lowest level since 2000, indicating that many jobless Americans are moving off the unemployment rolls, though there could be some seasonal hiring factors at play.5

Looking ahead, the holiday-shortened week is packed with economic data and analysts will be looking closely at the next Q3 Gross Domestic Product estimate as well as some important consumer sentiment indicators. Thursday kicks off the critical holiday shopping season and investors will be watching to see if hopes for the retail sector can turn into reality.

 

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

Tuesday: GDP, S&P Case-Shiller HPI, Consumer Confidence

Wednesday: Durable Goods Orders, Jobless Claims, Personal Income and Outlays, Consumer Sentiment, New Home Sales, Pending Home Sales Index, EIA Petroleum Status Report

Thursday: U.S. Markets Closed For Thanksgiving Holiday

Friday: Chicago PMI

Capture


HEADLINES:

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Existing home sales jump in October. Sales of previously owned homes rocketed to their highest level in more than a year, suggesting that the housing market may be on the rebound. Improvements in the labor market and lower mortgage rates may boost further sales activity.6

Oil settles higher. Actions by China’s central bank and rumors that OPEC could cut oil production sent crude oil slightly higher last week. With prices so low, any bullish sentiment could start an oil rally, though conditions remain optimal for continued low prices.7

U.S. factory production falls in October. Cutbacks at U.S. automakers caused industrial production to fall unexpectedly in October, indicating that manufacturing may have gotten off to a slow start in the fourth quarter.8

Housing starts fall in October, but building permits surge. Construction on new houses fell unexpectedly last month, continuing its oscillation of the past few months. However, permits for new construction jumped to a 6-1/2 year high, suggesting that builders are optimistic about their future prospects.9

A Slow Week Ends in New Highs Weekly Update – November 17, 2014

Image courtesy of FreeDigitalPhotos.net/Idea go

Image courtesy of
FreeDigitalPhotos.net/Idea go

Markets ended a sluggish week of trading slightly up, notching another record close for the S&P 500. For the week, the S&P 500 gained 0.39%, the Dow grew 0.35%, and the Nasdaq added 1.21%.1

Though last week’s data was sparse, several important economic reports show that investors may have something to be excited about. The latest retail sales data shows that shoppers came out in droves in October, giving sales a 0.3% boost. The rise in sales is even stronger than it appears, because lower gas station sales (caused by falling gas prices) depressed retail sales growth. Excluding volatile categories like automobiles, food, gasoline, and building materials, retail sales surged 0.5%.2

Much of the increase can be attributed to lower gas prices – in freefall since July – giving consumers more discretionary income to spend. Gas now averages $2.91 across the nation;3 if per-gallon prices stay low, we could see a very healthy holiday shopping season.

In another sign of a solid retail season, Wal-Mart (WMT), America’s biggest retailer, beat earnings estimates. Same-store sales, often considered a better indicator of organic growth, rose 0.5%, indicating that shoppers are coming back. Many of Wal-Mart’s customers are low-income Americans; positive earnings results could show that many of these consumers are no longer feeling the economic pinch.4

Americans are also generally feeling much better about their prospects. Consumer sentiment rose in November to more than a seven-year high. Falling unemployment and lower gas prices boosted confidence, though many Americans are still worried about income gains.5

The week ahead is heavy with economic data on manufacturing, housing, and inflation, which could cause some volatility as investors digest reports. Analysts are also already thinking about Black Friday and the official start of the year’s biggest shopping season. With October’s better-than-expected retail sales data, low gas prices, and optimistic consumers, some are forecasting a great season for U.S. retailers. Are these tailwinds baked into stock prices yet? We’ll see.

 

ECONOMIC CALENDAR:

 

Monday: Empire State Mfg. Survey, Industrial Production

Tuesday: PPI-FD, Housing Market Index, Treasury International Capital

Wednesday: Housing Starts, EIA Petroleum Status Report, FOMC Minutes

Thursday: Consumer Price Index, Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales

Capture


HEADLINES:

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Great news: Americans are quitting their jobs. The latest Job Openings and Labor Turnover survey shows that workers are quitting their jobs at the fastest rate since 2008. This trend is another indicator of labor market strength because workers tend to quit jobs when they feel confident in finding better work.6

Business inventories rise 0.3% in September. Though sales remained weak, U.S. businesses added to their inventory stockpiles at a faster rate than in August. The modest rise indicates that businesses are optimistic about their ability to sell through inventory in the coming months.7

Eurozone growth rates edges upward. The latest economic figures from Europe show that the overall Eurozone grew 0.2% in the third quarter. While Germany and France (Europe’s biggest economies) posted anemic growth, Greece roared back from recession, posting 0.7% growth.8

Strong dollar and weak oil are helping Americans buy from abroad. While American companies worry about the effect a strong dollar will have on their foreign sales, Americans are benefiting from cheap oil and the strength of the currency to buy overseas goods. September import prices fell by the most in two years, led by a large drop in the cost of imported fuels.9

November 2014 Monthly Video Update

Why Do We Care About Vehicle Sales Weekly Update – November 10, 2014

Image courtesy of FreeDigitalPhotos.net/Danilo Rizzuti

Image courtesy of
FreeDigitalPhotos.net/Danilo Rizzuti

Investors doubled down on the market rally, sending the Dow and S&P 500 to new highs after Friday’s October employment situation report showed that the unemployment rate dropped again.1 For the week, the S&P 500 gained 0.69%, the Dow leapt 1.05%, and the Nasdaq added 0.05%.2

The October jobs report buoyed hopes about the labor market by showing that job growth increased at a steady rate last month, adding 214,000 new jobs to the economy. The unemployment rate fell to a fresh six-year low, edging down to 5.8%. In terms of overall gains, the labor market has added over 200,000 new jobs a month for the last nine, the longest span of such gains since 1995.3

However, many Americans are still feeling anxious about the economic recovery and their prospects. Exit polls from Tuesday’s elections showed that nearly 60% of voters felt that the economy was stuck in neutral or even going in reverse.4 Why? Some economists (including Federal Reserve Chair Janet Yellen) point to stagnant wage growth.5

Taking a look at the chart below, we see that while hiring has increased since the bottom of the recession, real compensation (adjusted for inflation) has remained fairly flat. While the economy is undoubtedly doing better, many Americans haven’t seen those gains reflected in their paychecks or career prospects.

Capture

Most of the job gains in October came from the retail and food service sectors, which are not the well-paying jobs that we want to see.6 Much of that can be attributed to a pre-holiday staffing surge from restaurants and retailers who expect a solid holiday shopping season.

Are good jobs coming back? Yes, albeit slowly. One economist estimates that 34% of jobs gained in the third quarter of 2014 were in mid-paying industries as compared with just 21% a year ago. On the other end of the spectrum, low-paying jobs made up 39% of new jobs, as compared to 66% last year.7

October’s auto sales report also came out last week and showed investors a couple of important things: Auto sales are booming, up significantly since last year; average sale price is also up, gaining nearly 3% since October 2013; even better, price gains are outstripping incentives, meaning that car makers are able to offer fewer incentives to buyers, which is great news for firm profit margins.8 Why do we care about vehicle sales? We can treat big-ticket sales like autos as a broad proxy for overall consumer spending; generally speaking, when Americans feel well off enough to buy a new car, they are probably spending well in other areas.

Next week’s calendar is light on economic data and earnings season is largely over. With markets at new historical highs, it’ll take some pretty good news to keep buying pressure up. With a slow week ahead, it wouldn’t be surprising for investors to want to take some profits off the table and wait for more economic indicators. Analysts will be looking for Friday’s retail sales report to contextualize the surge in retail hiring. If strong shopping trends support the job growth, it may show that retailers are on track for a solid holiday season. If not, investors may worry that retailers will be hurt by high costs.

On this Veteran’s Day, let’s take a moment to honor those who serve. For your courage, hard work, and dedication to our country, we thank you. We also remember all those who have made the ultimate sacrifice for liberty – you will never be forgotten. Let’s also take a moment for our military families who have supported their loved ones from far away.

 

ECONOMIC CALENDAR:

Thursday: Jobless Claims, JOLTS, EIA Petroleum Status Report, Treasury Budget

Friday: Retail Sales, Import and Export Prices, Consumer Sentiment, Business Inventories

Capture
HEADLINES:

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Oil price slump could affect shale oil industry. While plummeting oil prices puts money in consumers’ wallets, it could also undermine the production of domestic shale oil, which is only economically feasible with oil prices above $80/barrel.9

Factory goods orders slide in September. New orders for U.S. factory goods fell for the second month in a row in September, underscoring worries about global growth. On the other hand, unfilled orders rose, indicating that October could be a better month.10

Trade deficit widens in September. The difference between U.S. imports and exports increased as exports fell, highlighting concerns that slow global growth and a strong dollar could undermine U.S. trade.11

Construction spending falls in September. Construction outlays fell unexpectedly as private construction fell to its lowest level since October 2013. While construction numbers can be volatile, slower building could indicate a lack of business confidence in the economy.12

Upside After A Turbulent Month Weekly Update – November 3, 2014

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of
FreeDigitalPhotos.net/cooldesign

Investors took advantage of a data-heavy week and rallied strongly, raising the Dow and the S&P 500 to new records. Upbeat economic reports and fresh hope for the global economy contributed to the market’s optimism. For the week, the S&P 500 gained 2.72%, the Dow gained 3.48%, and the Nasdaq gained 3.28%.1

Market surged Friday after Japan’s central bank announced an unexpected expansion of its enormous quantitative easing program. The move came after economic reports indicated inflation (and demand) was weakening in Japan. Economists hope that pumping trillions more into the aging country’s economy will be enough to stoke economic activity.2

On the domestic side, investors got a first look at Q3 economic growth and found that gross domestic product (GDP) grew a whopping 3.5% for the quarter.3. Though GDP growth decelerated from its 4.6% pace in the second quarter, it was the fourth quarter out of the last five that the economy has grown more than 3.5%.4 Keep in mind that this is only the first GDP growth estimate, and it will definitely see revisions as more reports come in.

The Federal Reserve’s Open Market Committee met last week and announced the end of its quantitative easing programs, meaning that after October, the Fed will no longer purchase new bonds to prop up the economy.5 Though the news was widely expected, analysts are reading a bit of a hawkish tone to the Fed’s announcement. Because the Fed feels optimistic about the country’s economic outlook, some analysts think that rate hikes might come as early as Spring 2015.6 Either way, we’re confident that the Fed will look closely at all the data available before making any big decisions.

Looking ahead, analysts will be watching the European Central Bank’s meeting to see whether Europe will follow where Japan is leading. Although demand is also weakening in Europe, it’s unlikely that the ECB will take on significant asset purchases. Investors will also be watching to see whether the October jobs report supports opinions that the labor market is improving rapidly.7

Overall, investors’ fears that led to the selloff in mid-month turned out to be unfounded. Is there more room for upside after a turbulent month? If October has taught us anything, it’s that markets can turn on a dime. Though investors are feeling better about the global economic picture, fresh worries could lead to further turbulence going forward. As always, we’re continuously monitoring markets and making prudent changes where warranted.

ECONOMIC CALENDAR:

 

Monday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: International Trade, Factory Orders

Wednesday: ADP Employment Report, ISM Non-Mfg. Index, EIA Petroleum Status Report

Thursday: Jobless Claims, Productivity and Costs

Friday: Employment Situation

Capture


HEADLINES:

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Jobless claims rise, but remain close to 14-year lows. New claims for unemployment benefits rose slightly, but remained very close to the levels last seen in 2000. In context, these levels are 20% lower than they were last October, indicating that fewer workers are being laid off.8

Durable goods orders falter in September. Orders for long-lasting manufactured goods fell for the second month in a row, indicating that companies are reluctant to spend in the face of slowing global growth.9

U.S. wages gain most since 2008. A measure of labor costs showed that the wages paid American workers gained significantly in the third quarter, a sign that a pickup in income growth is coming.10

Gas prices drop below $3/gallon. Nationwide, average gasoline prices have dropped below $3/gallon for the first time since December 2010, driven by a glut of oil on international markets. This is a boon to American consumers, who are spending much less on transportation.11

Markets: Signal, Noise & Fundamental Factors Weekly Update – October 27, 2014

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of
FreeDigitalPhotos.net/cooldesign

After several weeks of dismal performance, equities shook off their worries and rallied enthusiastically on solid quarterly earnings giving the S&P 500 its biggest weekly gain of the year. For the week, the S&P 500 gained 4.12%, the Dow grew 2.59%, and the Nasdaq surged 5.29%, erasing much of their losses from previous weeks.1

Last week, we discussed some of the factors behind the recent pullback; what changed in a single week? Fundamentally, very little. However, investors regained their optimism on the reminder that many companies are still doing quite well in the economic recovery. Traders also took the opportunity to buy the dip, which added buying pressure, pushing markets up.

Markets are fundamentally forward-looking, and while global growth fears remain, investors are looking at the earnings growth picture, and realizing that the picture looks reasonably good. Not great, to be sure, but so far, S&P 500 firms are reporting 4.1% year-over-year earnings growth on 4.7% revenue growth, with about 41% of the S&P 500 firms reporting as of October 24.2 If we leave out the struggling Finance sector, earnings growth jumps to 5.5%. These results are largely in line with performance in recent quarters, though earnings growth is below the four-quarter average, largely because of weak performance in the Finance and Technology sectors.3  All told: Firms seem to be holding their own and turning profits, despite some weak demand issues.

Does this mean that the pullback is over? Hard to say. Markets are responding more to perception and noise than they are to fundamental factors right now. That means that more turbulence – and perhaps downward movement – can be expected in coming weeks. On the other hand, if earnings and economic fundamentals continue to look good, we may see a continuation of the rally.

Looking ahead, earnings reports from the energy and healthcare sectors will dominate this week; the two sectors represent opposite sides of the market. Healthcare was one of the big success stories of the year, while energy companies have struggled with declining oil prices.4 While analysts expect weak results from many energy firms, they will be paying close attention to forward guidance; if energy leaders foresee a weak global economic environment, investors could respond with another attack of the nerves.

The week ahead is also heavy in economic data, with the Federal Reserve’s Open Market Committee meeting and a first look at Q3 Gross Domestic Product (GDP). The Fed is widely expected to announce the end of quantitative easing at this week’s meeting; analysts also expect the formal announcement at the end of the meeting to signal a more cautious Fed and their desire to let economic data decide future policy moves.5

Altogether, a big week ahead. We’ll keep you informed.

 

ECONOMIC CALENDAR:

 

Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence

Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: GDP, Jobless Claims

Friday: Personal Income and Outlays, Employment Cost Index, Chicago PMI, Consumer Sentiment

Capture

HEADLINES:
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Jobless claims remain close to 14-year low. Jobless claims inched higher last week, but stayed below pre-recession levels, suggesting that the labor market is firming up. The four-week moving average of claims, considered to be a less volatile measure, fell to the lowest level since May 2000.6

New home sales at six-year high. Purchases of new single-family homes rose to a multi-year high in September, though revisions to August numbers suggest sales remain on a lower trend. Single-family home sales tend to be volatile, but lower mortgage rates could spur more sales.7

European Central Bank fails 25 in stress test. The ECB failed 25 Eurozone lenders during a series of financial health tests. Though banks have improved markedly since last year’s tests, a few still have to raise more capital to protect against another potential financial crisis.8

Inflation indicator remains tame. Overall consumer prices rose a tepid 0.1% in September after falling 0.2% in August. Year over year, headline inflation is up 1.7%, indicating that inflation remains soft and is giving the Federal Reserve breathing room to manage interest rates.9

Protecting Your Sensitive Financial Information

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

In October, hackers accessed the personal information of over 83 million JP Morgan Chase customers. Fortunately, the hackers weren’t able to access financial information or gain access to client accounts. However, they were able to access the names, phone numbers, addresses, and email addresses of any current or past customer who logged into Chase.com, JPMorganOnline, Chase Mobile or JPMorgan Mobile.1,2 This unprecedented cyber-attack on a major American financial company naturally raises questions about the state of security in the financial services industry.

While there are a lot of questions still being answered, there is some good news to take away from this incident:3

  • No money was taken from client accounts and it doesn’t appear that financial databases were accessed at all. No fraudulent transactions have yet occurred using client information.
  • S. law enforcement and intelligence services are working closely with financial institutions to glean information and prevent future attacks.
  • This serious attack is a wake-up call for the whole industry that a coordinated hacking attack, possibly with the tacit support of foreign governments, can have a major impact on financial institutions. This realization will likely result in some major changes to security protocols at financial institutions.

Financial data theft is a major problem that can affect anyone. Though statistics on this type of data breach are scarce, it’s safe to say that millions of Americans are at risk. Fortunately, there are many ways that you can protect yourself from identity theft and fraud. Most of these actions are common sense, but they’re worth passing along to your loved ones:

  1. Be wary of emails or social media messages asking you to log into a financial account. Your bank, mortgage company, investment account, or the IRS will never request personal information by email. Never click on links embedded in those emails; instead, always log into your accounts by manually typing the web address into your browser.
  2. Never give out personal information in response to a phone call from someone claiming to represent the IRS or a financial institution. If you get a suspicious phone call, hang up and call the organization directly for more information.
  3. Protect your sensitive information by collecting mail promptly and shredding documents containing account numbers, credit card numbers, or your Social Security number.
  4. Never use the same PIN or password for multiple accounts or websites. Doing so increases the risk that a single attack could compromise your identity or result in fraud.
  5. Monitor your financial and credit card statements carefully to identify suspicious activity. If you find fraudulent transactions, report them to the relevant institution immediately to reduce your financial liability.
  6. Check your credit report each year at each of the three reporting agencies. You can check your report for free at com. If you find fraudulent accounts or activity that you don’t recognize, immediately file a report with all three agencies and place a security freeze on your account to prevent more accounts from being opened.

We take security very seriously and are committed to protecting our clients’ personal information in the following ways:

  • We partner with major financial institutions that use industry-recommended encryption to protect your data;
  • We never share any personal or financial information without your explicit knowledge and consent;
  • We regularly participate in audits of our internal procedures to help ensure that we are always following industry best practices;
  • We regularly update our knowledge and attend specialized training about security.

If you’re worried about how you may have been affected by a data breach or have questions about protecting your sensitive personal information, please give our office a call. We are happy to be a reassuring source of information and assistance.

Special Edition: Putting Market Corrections Into Perspective Weekly Update – October 20, 2014

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of
FreeDigitalPhotos.net/renjith krishnan

Markets posted another week of losses amid continued fears, though markets trimmed losses on Friday on better-than-expected earnings results from top companies. For the week, S&P 500 lost 1.02%, the Dow fell 0.99%, and the Nasdaq dropped 0.42%.1

After reaching new highs in mid-September 2014, markets have been roiled by volatility and selling pressure. We know that market declines can be nerve wracking and we wanted to take the opportunity to discuss the recent pullback with our clients.

Market Corrections are Normal

Since 1928, the S&P 500 has generally experienced between three and four corrections of more than 5.00% each year; the October pullback was the 20th decline of 5.00% or more in the current bull market.2 Declines of 10.00% or more are rarer, but are still seen nearly every 1½ years.3 Obviously, these are all averages and the performance of any single year can deviate significantly from historical norms.

In the current bull market cycle, markets have experienced just two declines of 10.00% or more: in Spring 2010 when the Federal Reserve launched its quantitative easing programs and in Summer 2011 when the euro appeared to be in trouble.4

Putting the Current Selloff Into Perspective

After a lengthy period of market gains – between January 1, 2013 and September 19, 2014, the S&P 500 gained 43.35%5 – many analysts were confident that a selloff had to happen eventually. The current selloff has largely been spurred by a combination of global worries: recessionary fears in Europe, slowing growth in China, some disappointing domestic economic reports, and Ebola concerns all contributed to the drop.

How far equities decline during a selloff depends on a lot of factors, including investor sentiment, corporate earnings, economic data, and growth prospects for the near future. In this case, markets are largely moving because of fear, not because of fundamental factors, so we can hope that the selloff will be brief. Although we ended the week with a loss, equities halted their slide on Friday and regained ground on the strength of recent earnings reports.6 Is the decline over? Hard to say.

Though the past can’t predict the future, we can look back at past market declines for hints of what we might expect going forward. Since 2009, pullbacks of 5.00% or more have lasted an average of about a month, peak to trough, meaning that the recent downturn may not be completely over.7

As of Friday’s close, the S&P 500 was down 6.19% since its peak in mid-September.8 Markets have gone 1109 trading days since the last 10.00% + correction. Since the average is around 509 days between corrections, we might be overdue. However, we went more than 2,500 trading days between corrections in the mid-nineties, so there is precedent for the winning streak to continue.9 Let’s also keep in mind that although the S&P 500 has lost ground this year and is hovering around 2.00% return, it’s still up more than 8.00% since the same period last year.10

Looking Ahead

The week ahead is thin on economic data but earnings season will be in full swing, which means that positive earnings could override fear-based selling. However, global worries still exist and it’s unknown how long the present weakness in the market will continue. We can hope that lower equity valuations, decent corporate earnings, and seller exhaustion will help push investor sentiment into positive territory as traders “buy the dip.”

Though some economic headwinds exist, we believe that slowing growth in Europe will have only a modest impact on the U.S. economy. Declines in oil prices may be a net positive for the economy as consumers have more money to spend; weakness in the euro should help European exports and mitigate recessionary fears. Corporate earnings appear to be reasonably decent, which should also help spur market growth. While we can’t predict the future, we believe that economic fundamentals are solid and favor continued market growth.

Conclusions

Though market corrections are rarely welcome, they are a natural part of the overall business cycle and it’s important to take them in stride. Declines also provide an environment to test your risk tolerance and ensure that your financial strategies and asset allocations are aligned with your long-term objectives and appetite for risk.

As professional investors, we’ve learned to seek out the opportunities in market corrections and volatility. Declines often create openings for tactical investing and allow us to invest in high quality companies at attractive prices. While we can’t use the past to predict the future, history tells us that having the patience to sit out brief rough patches often benefits our clients in the long run.

We hope that you have found this information educational and reassuring. If you have any questions about market corrections or are concerned about how the recent pullback may have affected your portfolio, please give us a call; we’re always happy to speak with you.

ECONOMIC CALENDAR:

 

Tuesday: Existing Home Sales

Wednesday: Consumer Price Index, EIA Petroleum Status Report

Thursday: Jobless Claims, PMI Manufacturing Index Flash

Friday: New Home Sales

Capture

 

HEADLINES:

Jobless claims plummet to 14-year low. Applications for new unemployment benefits unexpectedly fell to the lowest level since April 2000 as employers trimmed fewer jobs. Although this may be a blip, it’s a positive sign that businesses are boosting payrolls in the face of global uncertainty.11

Oil prices bounce back from four-year low. Brent crude oil prices moved above $86/barrel as investors speculated on oversold market conditions. Oil prices have largely moved on expectations of shifts in supply and demand rather than actually observed conditions, which may cause prices to move upward again, though changing fundamentals may keep oil prices low.12

Mortgage rates fall, spark refi mini-boom. Mortgage rates dropped below 4% last week, falling to their lowest level since June 2013. The drop has spurred a boom in refinancing as homeowners scramble to take advantage of lower rates.13

Mixed retail sales data leaves analysts guessing. Slow retail sales numbers and weak earnings reports from big retailers contrast with the optimistic forecasts of industry analysts, who are predicting strong holiday sales growth. It’s a situation where macroeconomic data supports strength while the microeconomic numbers from individual firms paint a weaker picture.14

Goal-based Investors Know Where to Focus Weekly Update – October 13, 2014

Image courtesy of FreeDigitalPhotos.net/ddpavumba

Image courtesy of
FreeDigitalPhotos.net/ddpavumba

Concerns about global growth caused markets to hit the brakes last week in a cloud of smoke and volatility, giving the S&P 500 and Nasdaq their worst week since May 2012. For the week, the S&P 500 lost 3.14%, the Dow slid 2.74%, and the Nasdaq dropped 4.45%.1

Macro-economic issues dogged markets last week and investors fell prey to concerns about issues like slowing growth in Europe, Ebola, the situation in Ukraine, and the coming end to the Federal Reserve’s quantitative easing programs. A confluence of fears helped open up a trapdoor beneath stock markets, but much of the selloff can be attributed to concerns about how a strong dollar and a weak European economy could hurt company profits. Both of these factors may combine to erode demand for U.S. exports and hurt businesses that rely on overseas demand.2

On the other hand, a weaker euro might be just the ticket Europe needs to stoke demand for its exports and jumpstart economic growth, much as a soft dollar helped pull the U.S. out of recession. A weak euro makes European products more competitively priced, hopefully boosting demand and giving the Eurozone economy a push.

As investor sentiment swung towards a fear-based selloff, investors ignored positive domestic economic news in favor of pessimistic headlines and questioned the soundness behind the recent run-up in stock prices. It’s not uncommon for periods of strong market gains to be interrupted by short-term pullbacks, but as long as the underlying economic trends in the U.S. remain solid, we can hope for more upside this year.

Bottom line: Threats to the market exist in the form of a slowdown in global growth and wildcards like the Ebola epidemic and security issues overseas. However, overall, the U.S. economy is doing well and many sectors are experiencing broad-based growth that’s driven by solid economic fundamentals. Though markets slid last week, let’s take a look at how far we’ve come since last year: As of last Friday, the S&P 500 has gained 12.62% since October 14, 2013.3  While these pullbacks are often frustrating, keep in mind that as goal-based investors, we are more focused on how long-term performance affects our personal financial goals and less focused on short-term market behavior.

With a thin economic calendar next week, analysts will be shifting their attention to Q3 earnings as U.S. banks and some technology companies begin to report.  Historically, as earnings season ramps up, analysts tend to focus less on macro-economic issues in favor of company-level data. Thus far, earnings expectations are modest, with S&P 500 companies expected to show 1.6% earnings growth on 1.7% higher revenues.4 However, keep in mind that many companies purposefully keep the bar set low so that they can benefit from positive earnings surprises. While more volatility is likely, positive earnings results could shift sentiment and encourage investors to buy the dip and give stocks a boost.

ECONOMIC CALENDAR:

 

Wednesday: PPI-FD, Retail Sales, Empire State Mfg. Survey, Business Inventories, Beige Book

Thursday: Jobless Claims, Industrial Production, Philadelphia Fed Survey, Housing Market Index, EIA Petroleum Status Report, Treasury International Capital

Friday: Housing Starts, Consumer Sentiment

Capture


Jobless claims fall to lowest level since before recession.
Weekly claims for new unemployment benefits fell sharply last week, pointing to continued improvement in the labor market. Initial claims dropped to 287,000, beating out estimates of 294,000 new claims.5HEADLINES:

Federal Open Market Committee Minutes show concern for growth. The minutes from the Fed’s September FOMC meeting showed little change from previous reports, indicating that quantitative easing will likely end on schedule this month. However, economists are worried about the effect of slow overseas growth on U.S. exports.6

Job openings surged in August. The latest reports show that the number of open jobs increased more than expected in August, led by industries like manufacturing, social assistance, and healthcare. This is good news for future hopes about the labor market.7

Oil prices tumble below $84. Crude oil prices fell below $84/barrel Friday for the first time since 2012 on concerns about global demand. Surging U.S. output also lessened worries about supply, pushing gasoline prices to an average of $3.24 across the U.S.8

October 2014 Monthly Video Update